Answer :

A person who is in need of money borrows money from banks or other financial institutions.

1. The money lent to the borrower is called the loan.

2. The borrower has to furnish details of security to take a loan.

3. The security is in the form of assets that the borrower owns. It may be in the form of land, building or any other fixed assets.

4. These assets are used as security till the loan is repaid.

5. These assets of the borrower which is used as security to a loan are termed as Collateral.

In case, if the borrower fails to repay the loan, the lender can sell this collateral or the assets of the borrower and take his money.

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